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What's a High-Yield Savings Account? And How Do You Get One?

Esther Trattner
What's a High-Yield Savings Account? And How Do You Get One?

Squirreling away cash under a mattress or in the freezer might keep your savings flat and fresh -- but the money won’t grow. And, all kidding aside, a traditional savings account isn't much better.

Conventional savings accounts yield as little as 0.01% percent a year. Think of that: If you keep $1,000 in your account, you'll earn a hardly-worth-mentioning 10 cents in interest during an entire year.

High-yield or high-interest savings accounts pay substantially more than that. That makes a high-yield account the perfect place to store your emergency savings, work on a down payment for a new home, or start your vacation fund.

Here's everything you need to know to score a high-interest account and make more money with your money.

Understand 'high interest'

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APY, or annual percentage yield, is the first number you will see when looking for a savings account. That's the yearly rate of return on the money in your account, and it includes compound interest, which is the interest earned on your interest.

Interest might be compounded daily, weekly, monthly, semi-annually or annually. As a rule of thumb, the more frequently your investment compounds and builds interest on the interest already earned, the faster your money grows.

So how high is the interest offered by a high-interest savings account? As of March 2019, the best rates were a bit above 2% — 200 times more than a standard savings account.

Read the small print

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As with most financial products, it's important to understand the terms and conditions.

Many high-yield savings accounts require that you open the account with a deposit of a specified size, or always keep a certain amount in your account to access the high APY.

But don't worry. Plenty of high-yield accounts have no minimum deposit or minimum balance requirement. Always examine the terms closely.

Note that some banks charge set-up or maintenance fees for high-yield savings, or you may be required to maintain additional accounts — such as checking, with regular deposits — before you can open a high-yield account.

You also may face fees for withdrawals, or there may be a limit on the number of withdrawals you can make each month.

Choose the best account

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You'll want to plan to make regular deposits. The more money you have in your account, the more interest you’ll earn and the faster your savings will fatten.

When shopping around for a high-yield account, consider minimum deposit and balance rules, and look for the highest APY.

As you cast around for the perfect high-yield savings account, don't focus narrowly on just brick-and-mortar banks and credit unions. Many online-only banks have excellent high-interest products.

Because they don’t have to cover the costs of a physical location, online-only banks can pass along savings to customers in the form of higher APYs.

The downside of online banks is that they may have slower customer service response times or offer more limited access to your money.

Get saving!

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To get started, ask your current bank or credit union about the rates and requirements for its high-yield savings accounts. Then, look around online for today's best savings rates.

High-interest accounts are federally insured up to $250,000. Make sure you're dealing with a bank insured by the Federal Deposit Insurance Corporation (FDIC), or a credit union insured by the National Credit Union Administration (NCUA).

Committing your money to a high-yield account can grow your savings easily, and without the volatility of the stock market.

But here's some final food for thought: 2% interest beats 0.01%, but it still isn't much. You will earn much better returns from stocks and other types of investments — if you're willing to put up with some risk.